Having rolled back the turnover tax, the Finance Minister must look at other Budget glitches that will harrass taxpayers; for instance, those who need to collect Tax Deduction at Source (TDS) certificates. In the grand scheme proposed by Dr Vijay Kelkar, people were to be protected from the hassle of seeking TDS certificates (which are legally supposed to be issued without asking) by having TDS deductions reported directly to the tax authorities and entered into a central database. Each taxpayer would have access to the database through a Permanent Account Number (PAN) identification and password. The database is nowhere in sight, but the Budget has gone and changed the TDS reporting requirement. Amendments to Section 203 and Section 203 AA say that TDS details should now be sent to the Income Tax authority or a person authorised by it (the National Share Depository Ltd was to set up the database) and no certificate is required to be issued to the person whose tax is deducted. This means that people whose tax is compulsorily deducted will not even have a piece of paper to prove their tax payment. Worse, they will be at the mercy of Income Tax officials to get TDS certificates. A highly reputed Chartered Accountant says, ‘‘Getting a TDS certificate will now be as arduous as getting a tax refund.’’ The TDS rule is over and above the draconian powers of arrest given to IT officials and the ridiculous condition that even individuals will have to report any purchase over Rs 50,000 to the tax authorities.
One reason why the FM needed to introduce a turnover tax is the large-scale tax evasion by stock market speculators. Before the FM rolled back the quantum of Securities Transaction Tax (STT), day-traders and speculators had assembled in Mumbai to finalise their plea to Mr Chidambaram. Several individuals made impassioned statements about how the 15 basis point STT would cause them to lose a daily income of anywhere between a few hundred rupees to Rs 5,000. Someone then asked the audience how many had Permanent Account Numbers (PAN). Very few hands went up. An exasperated organiser then advised the traders to pipe down about their big earnings loss and avoid specific numbers. Tax evasion is indeed rampant in the capital market. Despite so-called audit trails, tax evaders have figured out different routes to tax avoidance in connivance with the authorities. Although some investors are among the highest taxpayers in India, others pay nothing and manage to trade openly even when they are barred from the capital market. They also flaunt flashy lifestyles and expensive cars without any fear of detection. The turnover tax will ensure that at least some payment accrues to the exchequer.
The investment banking community and capital market intermediaries are not exactly smiling at the efforts of the Securities Market Infrastructure Leveraging Expert Task Force (SMILE) to assess infrastructure needs of the primary market. SMILE was set up after the share allotment fiasco involving ONGC and other public sector offers in March. And in the process of cleaning up primary market infrastructure, it came up with an ambitious plan to introduce a fully automated process for Initial Public Offerings (IPOs). This newspaper first said that the SEBI should slow down a little on its attempt to automate every aspect of the capital market, because the rest of the country was finding it difficult to keep pace. This view is gaining increased currency as people find it less embarrassing to say that automation may mean increased transparency, it is not taking all the people along and in fact, limiting the markets to those who are tech-literate. Also, while automated systems do create precise audit trails, those manning the systems, including various regulators, haven’t learnt to be investor-friendly and to deal quickly with genuine complaints. We need automation and transparency, but we also need to pause and bring more people on board.
The Swedish multinational, AstraZeneca Pharma India is among the few companies using the reverse book-building route to delist its shares from Indian bourses. The scrip has been trading anywhere between Rs 860 and 910 with reasonably good volumes. However, an investor has drawn the regulator’s attention to two bids that are completely out of sync with the price trend. One is a bid for 1,750 shares at Rs 825.00 and another for 195 shares at Rs 850. Is someone trying to skew the bidding to lower the offer price?
Although the bids are small, SEBI needs to investigate whether they are deliberate or a mistake. If deliberate, the regulator must make an example of this case in order to ensure that the reverse-book building route is not abused in its very infancy to deprive investors of a correct exit price.